Friday, April 01, 2005

Econoday - Consensus Report: Employment Situation April 1, 2005

Econoday - Consensus Report: Employment Situation April 1, 2005

The employment report was fantastic. The pressure is off bond rates and short interest rates. The economy is growing but not too fast. As Econoday reports, the jobs number was half of the projected number. The biggest risk in a strong economy is that employment growth will be too fast sparking an inflationary spiral.

In recent weeks, traders have focused on commodity prices. The sharp run-up has sparked inflationary fears. Folks need to step back to get a view of the "big picture"; labor costs make up about 70% of GNP; commodity costs make up about 10%. Think about a basketball team which averages 80 points per game and holds opponents to an average of 70 points per game. If one opponent has a player who averages 10 points but who scores 11, it would not be good news. The more important news would be the total team score. The report this morning is like learning that the opposing team has a total of 51 points eleven by the one player doing well. The news earlier in the week says our team has scored 89 points. Our team is winning by 38 points!

The economy is strong; growing at an inflation adjusted rate of 3.8%! There are plenty of resources available. We can deal with the few areas of tightness such as oil.

Last night on a 4 mile round trip to a local restaurant, I passed or met about 50 of the biggest trucks and SUV's made. If fuel prices were a real problem these vehicles would be parked. Yes, folks need to change their attitudes about fuel consumption; no, the price of fuel is not going to $4 per gallon; yes, the S&P is on the way to 1,500.